No one could blame you for wondering how many square meals you could buy for the world’s poor with 45% of US$19-billion (reportedly the stake held by the founder of WhatsApp when it was acquired by Facebook this past week). Or wonder why the Snapchat founders didn’t accept US$3-billion and retire on their own islands before the age of 30.
It seems that the mobile messaging space is white-hot in 2014 and if you’re like me, you’re wondering what’s going on here.
Our story begins with tweens — those little people who are not yet teenagers, but also no longer babies.
Tweens are crazy about consuming mobile content, even more so than the millennial that we’ve just gotten used to as our next generation of consumers. Unfortunately for the tweens, their parents are evolving their way out of the email bog and finding their way onto Facebook. It’s happened to all of us. Your friends are having a feeding frenzy underneath your latest Facebook post until your parent (whom you momentarily forgot was on Facebook) comments and then… crickets. When you’re 35, your friends make you suffer for the indiscretion. When you’re 10, it’s social manslaughter.
In fact, it seems that Facebook is quickly losing its tweens to competing chat apps such as WhatsApp, Snapchat, Kik and others. At Snapchat, not only are your parents not there (yet), but along with your messages, your ugly selfies disappear before your parents snoop around on your handset.
As for the rest of the user base, the news doesn’t seem to get very much better for Facebook.
Two factors appear to be shaping the mobile messaging space at this time:
The backlash to these events has been an increased demand for encrypted, even disappearing messaging and a previously unknown chat app appears to be the biggest short-term beneficiary of new users – Telegram.
Telegram seems to provide just the right level of privacy that today’s chat user demands. To back up their claim to be inaccessible to even the Russian Security Police, they have a US$200 000 bounty for anyone able to hack their system. Telegram is now the number one iPhone app in 48 countries.
So why is there so much M&A activity and venture capital interest in this space at the moment? As always, we should follow the money.
Line, Kakaotalk and WeChat are the dominant OTT chat apps in their respective home markets (Japan, South Korea and China) and supremely profitable on smaller active user numbers. The lion’s share of the revenue that these apps generate is from virtual goods sales, not ads. They’ve shown that advertising is not the only way to monetise a chat app. It seems that these Asian OTT apps have also attracted attention to this opportunity, as large Japanese ISP Rakuten also acquired another US-based OTT app, Viber, for US$900-million in February 2014.
But the story doesn’t end there.
It’s not as simple as saying that advertising will be replaced by virtual goods sales on OTT chat apps. It’s widely believed in startup investor circles that OTT chat apps participate in a winner-takes-all market. Koum and Zuckerberg both said at Mobile World Congress that Facebook has no intention to monetise WhatsApp further at this time. Rather, they would remove any barriers to adoption and grow WhatsApp to one-billion active users. It seems that advertising and other services (games, emoji, stickers, etc.) are more likely viewed as barriers to adoption, because they can admittedly reduce the quality of the user experience when aggressively pursued for monetisation purposes.
I believe that this winner-takes-all belief when it comes to building mobile communities is web 2.0 thinking erroneously carried forward into a mobile-first world. OTT chat apps do not create communities the way that desktop social networks did.
The network effects that have to be overcome in order to move users from one social networking platform to another are not as strong on mobile as they were on the desktop. In the mobile world, a person’s unique identifier is their mobile number (MSISDN). It is now less of a concern to signup for a new chat app not knowing who else is using it, because:
The modern smartphone user has many OTT chat apps installed and doesn’t care to choose a single app.
In our near future, we will all be sending mobile messages using multiple protocols and platforms. We have become largely app and protocol agnostic. Mobile messaging is not a winner-takes-all market. Let’s enjoy the variety that will be served up by smart app developers.